Godrej Agrovet ~ Animal Feed, Crop Protection, Palm Oil, Dairy & Processed Foods

Godrej Agrovet Q1 FY25 Analysis: Key takeaways!!

Godrej Agrovet reported strong profitability growth in Q1 FY25 despite a marginal decline in revenues. The company’s profit before tax, excluding non-recurring items, improved by 36% to ₹169 crores compared to ₹124 crores in Q1 FY24. This growth was primarily driven by robust volumes and improved realization in the domestic Crop Protection business and margin expansion in the Animal Feed and Dairy businesses.

Strategic Initiatives:

1. Focus on increasing the salience of value-added products in the Dairy segment, which improved from 36% of total sales in Q1 FY24 to 42% in Q1 FY25.
2. Reduction of exposure to the live bird business in the Poultry segment, focusing more on the branded business.
3. Exploration of portfolio restructuring options to bring more flexibility to the system.
4. Increased focus on branding activities in the Godrej Tyson Foods business following the acquisition of full ownership.

Trends and Themes:

1. Delayed agricultural seasons due to excessive heat in May-June.
2. Margin expansion in Animal Feed and Dairy segments.
3. Pricing pressures and demand headwinds in the Astec LifeSciences enterprise products business.
4. Growing focus on branded products in the Poultry segment.

Industry Tailwinds:

1. Expected improvement in milk prices, particularly in Maharashtra.
2. Anticipated bumper corn production due to good rainfall and increased crop area.
3. Benign raw material prices, especially for protein sources like soybean and DDGS.

Industry Headwinds:

1. Subdued milk prices impacting Animal Feed volumes.
2. Pricing pressures in the Crop Protection segment, particularly for triazole products.
3. Overcapacity and increased supply from China in the Crop Protection chemicals market.

Analyst Concerns and Management Response:

1. Concern: Weak performance of Astec LifeSciences.
   Response: Management has taken inventory write-downs and is exploring new product opportunities to utilize existing capacities.

2. Concern: Decline in Animal Feed volumes.
   Response: Management expects improvement as milk prices stabilize and the season progresses.

3. Concern: Sustainability of high margins in Animal Feed and Crop Protection segments.
   Response: Management expects to maintain margins around current levels due to favorable commodity positions and product mix.

Competitive Landscape:
The company maintains strong positions in its key segments. In Bangladesh, the joint venture ACI Godrej has grown from the 15th to the 2nd largest Animal Feed company.

Guidance and Outlook:
Management expects EBITDA margins to stabilize between 9-10% in the coming quarters. They anticipate growth in the CDMO business of Astec LifeSciences by 60-70% year-on-year.

Capital Allocation Strategy:
The company has announced a ₹110 crore capex project for Animal Feed in Maharashtra and plans a new refinery in the Oil Palm business with an investment of ₹70-80 crores. Most capex will be managed through internal accruals.

Opportunities & Risks:

Opportunities:

1. Expansion in branded poultry products.
2. Growth in the CDMO business of Astec LifeSciences.
3. Potential benefits from the government’s Agri stack initiative.

Risks:

1. Continued pricing pressures in the Crop Protection segment.
2. Political instability in Bangladesh affecting the joint venture.
3. Volatility in commodity prices impacting margins.

Regulatory Environment:
The implementation of the Agri stack initiative by the government is expected to bring significant changes to the agricultural sector, potentially benefiting companies like Godrej Agrovet in the long run.

Customer Sentiment:
Farmers have been reducing feed quantities due to subdued milk prices, impacting the Animal Feed business. However, this trend is expected to reverse as milk prices improve.

Top 3 Takeaways:

1. Strong margin expansion in Animal Feed and Dairy segments driving overall profitability.
2. Challenges persist in Astec LifeSciences due to market oversupply and pricing pressures.
3. Strategic shift towards branded products in the Poultry segment following full ownership of Godrej Tyson Foods.